UK Chancellor of the Exchequer Sajid Javid has announced that the Budget will take place on Wednesday 11 March 2020.
It follows the Conservatives winning a majority in the December 2019 UK general election on a manifesto of “getting Brexit done”.
It is also extremely likely to be the first Budget after the UK leaves the European Union on 31 January 2020, pending any successful last-ditch attempts to halt Brexit.
“People across the country have told us that they want change,” said Javid. “We’ve listened and will now deliver.
“With this Budget we will unleash Britain’s potential – uniting our great country, opening a new chapter for our economy and ushering in a decade of renewal.”
Tom Selby, senior analyst at AJ Bell, said: “Despite winning a huge increased majority at the general election, we still don’t really know what Boris Johnson’s vision for the UK is beyond ‘getting Brexit done’.
“This first Budget should give us a much clearer idea.”
Pension tax review
Despite the Conservative manifesto being very light on tax proposals, changes are expected for the pension sector, which is an area that has been rather neglected since the Brexit referendum result in 2016.
In that time, there have been seven MPs who have taken up the role of Secretary of State for the Department for Work and Pensions (DWP).
According to Tom McPhail, head of policy at Hargreaves Lansdown, one area where change is needed is pension tax relief.
“The UK’s pension tax relief system is no longer fit for purpose,” he said.
“It has become complicated, inefficient and increasingly socially divisive; every year it consumes tens of billions of pounds of taxpayers’ money, much of which is poorly allocated, giving too much to some and not enough to others.
“The recent election result, giving the new Conservative government a clear mandate, presents an opportunity to confront the bloated inefficiencies of the UK’s retirement savings, addressing not just the immediate problems of the tapered annual allowance and the net pay issue for lower earners, but reforming the entire system for the 21st century.”
Steven Cameron, pensions director at Aegon, added that the government should “incentivise greater savings”.
“Tax reliefs for pensions play an important role here and may need reformed to make them simpler.
“While there is also merit in giving a greater share of reliefs to lower rather than higher earners, it’s vital that any new approach still means it remains in everyone’s financial interests to save in pensions.”
Sensible radical overhaul
AJ Bell’s Selby said that another issue that needs to be solved is net pay, which has “plagued low earners for years, with those in the wrong type of pension scheme missing out on valuable tax relief”.
This was also an issue raised by McPhail, who said: “Members miss out on tax relief on their pension contributes, due to the way their employer administers their scheme.”
Selby continued: “The Conservatives have promised a ‘comprehensive review’ to fix the problem, although it is by no means certain a solution will be found in the next three months.
“It is therefore possible these reviews of specific pension tax problems will open up Pandora’s Box, focusing Treasury attention on the overall structure – and cost – of pension incentives.
“In 2017/18, the net cost to the Exchequer of tax and national insurance relief on pensions was roughly £35bn ($46bn, €41bn).
“If a radical overhaul of tax relief is in the offing, it is important this is carried out sensibly and doesn’t risk the fragile savings culture currently being fostered in the UK.
“Ripping up the roots of our savings system without first understanding how this might affect the propensity of people to save for retirement would be a huge risk and could undermine the good work so far done under automatic enrolment.”
The Annual Allowance Taper
Another problem that has consistently been spoken about by pension experts is the annual allowance taper, which was introduced by the Conservatives in April 2016 under then-chancellor George Osborne.
Those earning less than £150,000 can put £40,000 every year into their pension without incurring any additional tax charges.
But for every £2 of adjusted income over £150,000, an individual’s annual allowance is ‘tapered’ by £1.
Once their income reaches £210,000, it drops to £10,000 a year.
For some high earners, including members of defined benefits schemes, this can result in them inadvertently incurring a tax charge.
McPhail added: “In its manifesto, the Conservative Party promised a review of the problem ‘within the first 30 days’.
“This is not an easy one to fix without making the pension system even more complicated than it already is.
“The Treasury could simply scrap the taper, but that would then increase the already substantial amount of tax relief enjoyed by higher earners.”
Engagement
Aegon’s Cameron also said that the public’s engagement with their finances needs to be a priority.
“Industry and government needs to work together to truly engage people with their retirement savings and where their money is invested through initiatives such as pension dashboards, which will show people all of their pensions together online,” said Cameron.
“Many people will need to save more than the auto-enrolment minimum to meet their retirement aspirations and we need to support them to understand this.
“With growing controversy over the continued increases to state pension age, and to mirror the flexibility already available within private pensions, we’d also call on the government to explore in the coming years how to offer people the choice of taking their state pension earlier than the ‘standard’ age at a reduced level to make it financially fair.”
